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Summary: Laurus Labs once lived on government tenders where the cheapest bid won. It has since spent heavily to become a different kind of drug company and the market has noticed. But the last time its margins looked this good, they did not hold. What is different now, and is the price already banking on it?
Laurus Labs was once largely a supplier of HIV medicines, competing for government tenders where the lowest price often won. Today, it increasingly makes ingredients for global drug companies under contracts that can bring years of repeat orders. The market has taken note. Since the end of FY23, the share price has risen more than eight times, from about Rs 280 to about Rs 2,350.
The limits of building on HIV medicines
Laurus began in 2005 by making ingredients for HIV medicines, known as antiretrovirals or ARVs. It made the active pharmaceutical ingredient (API), the chemical that does the medical work, and later the finished tablets too. The company says its ARV products reach about a third of people with HIV worldwide.
Governments and global health programmes buy these medicines in bulk through tenders, and the lowest bid usually wins. Suppliers have little pricing power, so they must keep costs low to earn a margin. Laurus had begun moving into other medicines, but ARVs were still its biggest business. Its earnings rose and fell with tender prices.
More drugmakers chased the same orders, and prices fell. In South Africa’s tender, the world’s largest, prices of some HIV drugs fell by up to half for FY24. Laurus lost orders before cutting its own prices, and its tablet sales dropped sharply. Its operating profit margin fell from 26.5 per cent in FY23 to 16 per cent in FY24
A one-time Covid order hid the damage for a while. Under a contract, Laurus made an ingredient for a Covid pill. When the order ended in December 2022, the weakness showed. In FY24, profit fell by about 80 per cent.
Laurus had already chosen its direction. In October 2022, it announced Rs 2,000 crore of spending for FY23 and FY24, half of it for custom synthesis(CDMO). The Covid order showed both what such work could earn and how quickly it could vanish.
Building capacity before the orders arrived
In contract manufacturing, a drug company that has invented a medicine hires another firm to work out how to make it at scale, and then to make it. Such firms are called CDMOs (contract development and manufacturing organisations).
Winning this work takes patience. Drug companies want to see a supplier’s plants before handing over a product. Once a drug is approved, they rarely move it, because switching sites needs a regulatory filing and fresh checks, though big drug companies often keep a second supplier. So Laurus had to build first and win orders later.
The orders came slowly. Early-stage drugs need only small batches. Larger volumes come in late-stage trials and after approval, which can take years. Meanwhile, Laurus paid for plants and staff that were not fully used.
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|
FY23 | FY24 | FY25 | FY26 | H1 FY27 |
|---|---|---|---|---|---|
| Asset turnover (times) | 1.1 | 0.8 | 0.8 | 0.9 | 1 |
| Operating profit margin (%) | 26.5 | 16 | 20.4 | 26.9 | 33.2 |
| Return on capital employed (%) | 23 | 6.6 | 10.2 | 18.2 | 22.5 |
| H1 FY27 is April to September 2026. | |||||
How CDMO became the growth engine
Between FY22 and September 2026, it spent more than Rs 5,000 crore on new plants, labs and equipment, mostly for APIs and contract manufacturing.
In FY24, Laurus’s CDMO business earned about Rs 220-250 crore a quarter. Now it earns more than Rs 800 crore.
| FY23 | FY24 | FY25 | FY26 | H1 FY27 | |
|---|---|---|---|---|---|
| CDMO revenue, small molecules (Rs crore) | 2,167 | 922 | 1,374 | 1,896 | 1,710 |
| Share of total revenue (%) | 35.9 | 18.3 | 24.7 | 27.8 | 40.4 |
| Small-molecule CDMO only; excludes Laurus Bio. | |||||
The table also shows how FY23 and today differ. In FY23, contract work was about a third of sales, but most of it came from one Covid order.Today it is two-fifths. Management aims to take CDMO, including Bio, to about half of sales by FY30.
More of this revenue now comes from drugs already on the market. In the June 2026 quarter, about 55 per cent came from supplies for marketed drugs, and the rest from drugs still in trials. Sales held steady at the higher level in both the June and September 2026 quarters, and more drugs Laurus supplies are awaiting approval. But management itself calls CDMO revenue lumpy and says it should be judged over a full year.
Customers also have reasons to stay. Laurus can now take a drug from early development to commercial manufacturing. It also uses newer methods, such as flow chemistry, where reactions run continuously through tubes, and biocatalysis, which uses enzymes in place of harsh chemicals. Its quality record helps too. Laurus has passed 54 inspections by major regulators, including the US FDA. In the first half of FY27 alone, customers audited it 58 times
Verdict
Laurus’s margins are now higher than at their FY23 peak, but the real test is whether they last. Last time, they rested on one large order and fell sharply when it ended. This time, more than half of CDMO revenue comes from drugs already on the market, which makes the base steadier.
The risk is the price. At about 95 times earnings, the market already expects strong growth for years, which leaves little room for a slow quarter. The next big bets, peptides and oligonucleotides, are also years away from adding to sales.
Also read: The journey from kilograms to pharma labs
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